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Social Security - A Ponzi Scheme

The Lawrence Journal-World recently published an editorial, "National Divide," linked to President Obama's economy speech given at Georgetown University. The forum users at one point began a sidebar discussion of Social Security.

An astute user, Did_I_say_that, made the comparison of Social Security to a Ponzi Scheme. Is there a legitimate comparison of Social Security to a Ponzi scheme? Let's take a look at the Security and Exchange Commission's (SEC) definition and signs of a Ponzi scheme from their Ponzi Scheme - Frequently Asked Questions page.

What is a Ponzi scheme

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

With only minor changes the above description of a Ponzi scheme can be adapted as a description of Social Security.

"Social Security is an investment that involves the payment of returns to existing investors from funds contributed by new investors. The SSA solicits new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. Social Security attracts new money to make promised payments to earlier-stage investors to use for personal expenses."

Why do Ponzi schemes collapse?

With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

Although there is a continuous supply of new "investors" into Social Security, the second reason for collapse - "when a large number of investors ask to cash out" - is occurring now. Baby Boomers are now starting to draw Social Security and the raw number threatens to overwhelm an already strained system.

What are some Ponzi scheme “red flags”?

According to the SEC, "Many Ponzi schemes share common characteristics." Here are some of the warning signs:

High investment returns with little or no risk.

Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.

Some of the first "investors" in Social Security, those retiring in 1960 and having paid in for nearly 23 years, would have made life time contributions of $17,600 (single male, 2010 dollars). This same group experienced individual lifetime payouts of approximately $125,000. The differential has slowly been shrinking. A person retiring in 2010 may only collect $417,000 for his $345,000 contribution. Additional comparisons of individuals and couples may be found in the Urban Institute report, Social Security and Medicare Taxes and Benefits Over a Lifetime.

Overly consistent returns.

Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.

Unlike private retirement programs and investments, Social Security has always provided consistent and typically increased benefits. Prior to 1950 this was accomplished irregularly via legislation. However, in 1950 Social Security recipients were given a 77% increase in benefits and have had a Cost Of Living Allowance (increase) every year since then, with the exception of 2009 and 2010.

Unregistered investments.

Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.

Funds collected from employees and employers for Social security are accounted for in the Social Security Trust Fund. Well, kind of, that is. Actually, anything over and above what is actually budgeted to be spent is put in the trust fund. The trust fund, not subject to SEC regulations, loans money to the Federal government at a conservative interest rate.

Unlicensed sellers.

Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

Needless to say (yet, I find the need to say it), the government always exempts itself from its own regulations. There is no license to "sell" Social Security ... unless it is a license to steal.

Secretive and/or complex strategies.

Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.

Here is The Social Security Act of 1935. The list of Social Security Publications could, in and of itself, be considered complex.

Issues with paperwork.

Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.

Issues with paperwork? See above list of Social Security Publications.

Difficulty receiving payments.

Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.

Although there are some examples of late payments, and a few times that all payments were delayed, Social Security has been consistent in its payments to recipients. However, as every senior citizen can tell you, Social Security is constantly held hostage by Congress and payments are continuously the subject of threats. Normally, the threat comes as a warning from the minority party, "They want to cut Social Security and starve grandma." Congress, regardless of party, should not have the power to threaten grandma.

Social Security promises a higher dollar payout for deferring (roll over) retirement.

The Last Word

So, is Social Security a Ponzi scheme that is doomed to crumble in upon itself and leave millions of Americans without promised benefits? A Ponzi scheme? The Social Security Administration states that it has "nothing in common with Ponzi schemes." Imagine that! Doomed to crumble in upon itself as it pays out more than it receives? You bet your sweet bippy!



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Obama and a Titcomb - Punchline Wanted!

Only in America. President Obama has a close friend from his native state (that means the state wherein he was born) of Hawaii. His friend's name is Robert (Bobby) ... wait for it ... Titcomb. That is correct: Robert Titcomb. But, it gets even better. Mr. Titcomb was just arrested in Honolulu for ... wait for it ... soliciting an undercover policewoman for sex. Yes, Mr. Titcomb was arrested for suspicion of soliciting a prostitute. Yes, the President's playmate was arrested during a sting to bust up a prostitution ring.

AOL News reports that, "The 49-year-old Titcomb attended Punahou School in Honolulu with Obama. The two often golf, play basketball, go to the beach and dine together when the president returns home to Hawaii for vacation."

This story is begging for a punchline. Let's hear your punchline to this story.



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Ground Zero - Zero Tolerance

The proposed site for a Muslim Community Center and Mosque, 45 Park Place New York, NY has become the center of controversy . The location, a former Burlington Coat Factory is claimed by some to be a part of the 911 ground zero. Where is ground zero?


Ground Zero

Ground Zero is, "the point directly above, below, or at which a nuclear explosion occurs; the center or origin of rapid, intense, or violent activity or change." The term came into use in 1946 and was used to describe the bombing sites of Hiroshima and Nagasaki, Japan after the United States responded to Japan's unprovoked attack on Hawaii.

These pictures of Hiroshima, taken after the August 5th, 1945 atomic bomb explosion, shows the level of destruction for an atomic ground zero.

It is safe to say that most of the area shown in the above pictures would be considered ground zero even though the actual explosion of the atom bomb took place in a much smaller area. Much of the total destruction was caused by the intense shock wave that radiated outward from the center of the explosion. This picture has a building that was hit by debris, yet remained standing. Could an argument be made that the building is not a part of ground zero since it was not in the center of the explosion and it remains standing, even after being pelted with debris?

Just shy of 60 years after the unprovoked attack on Pearl Harbor, Hawaii, Islam terrorists made an unprovoked attack on the twin 110 story World Trade Center towers totally destroying them and much of the surrounding area.

Two blocks away stood the Burlington Coat Factory, a four story building at 45 Park Place. Video shows the flying debris of United Airlines Flight 175 after it was flown into the South Tower of the World Trade Center.

Debris and Damage at 45 Park Place:

This relief map shows where major debris from the attack on the Twin Towers landed. The Burlington Coat Factory at 45 Park Place had landing gear crash through its 4th story roof. Additional debris found at the sight included parts of bodies of victims from Flight 175.

This areal photograph taken September 23, 2001 shows a large blue tarp used to cover the damage to the roof at 45 Park Place

One might also notice, in the above picture, that total destruction was not limited to the Twin Towers. In fact, total building destruction of the World Trade Center Building 7 is observed within one block of the Burlington Coat Factory.

Where is ground zero?



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Religions of Intolerance

Religions, sometimes, are intolerant. The consequences of intolerance is what should be of concern. Three of the following four religions assign afterlife consequences to non-believers. One of the four assigns consequences during this life.


Angry

Judaism's deity is intolerant of the worship of other gods.


“I am the Lord your God... You shall have no other gods before Me...You shall not make for yourself a carved image...For I, the Lord your God, am a jealous God..."

The Consequence of disbelief:
"...that soul shall be cut off from his people; he hath broken My covenant."


Angry

Christianity is intolerant of those that do not follow the one way.

“Jesus answered, 'I am the way and the truth and the life. No one comes to the Father except through me'"

The Consequence of disbelief:
"...and so that all will be condemned who have not believed the truth but have delighted in wickedness."


Angry

Islam is intolerant of any religion that is not Islam.

“...The only religion in the sight of God is Islam...”


The Consequence of disbelief:
“...never will it be accepted of him; and in the Hereafter, he will be in the ranks of those who have lost (their selves in the Hellfire.”


Radical Islam is intolerant of all infidels (non-Islam).

“...The only religion in the sight of God is Islam...”

(Click picture for information on Islamic Blood Ritual.)

The Consequence of disbelief:


One of these four is not like the others.
One of these four just does not belong.
One of these four is dangerous to all others.
One of these four does not want to get along.

Remember 9/11. America is under attack.

It is not under attack by your Jewish neighbor.
It is not under attack by your Christian neighbor.
It is not under attack by your Muslim neighbor.
But, make no mistake, America is under attack.



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Obama’s Nation - How You Doin’?

Political discourse is filled with hypotheses, hyperbole, and hyper activity. The Radical Right Wingers, the Loony Left, and the Mediocre Moderates can't seem to agree on anything. President Barack Obama has been described as the Messiah, the Anti-Christ, and most everything in between. Citations proving a person's opinion can range from fact to fiction, from historical to hysterical.

This blog does not seek to do any of that. Rather, it is in the hunt for anecdotal evidence of the effects of the Obama administration and policies. In addition, for the purpose of this forum, any legislation, regulations, appointments, etc. that have occurred since the inauguration of President Obama is acceptable.

How has the election of President Obama, the 111th Congress, and the Senate affected you and yours? Specifically, what policy, activity, action, inaction, decision, decree, law, or regulation has had, or will have, an effect on you, your family, your relatives, or your friends. For the purpose of this discussion, let's limit claims to those with which you are personally connected.

I'll start.

The Patient Protection and Affordable Care Act, also commonly know as ObamaCare, will have a negative effect on my income and ability to purchase medications. The act will eliminate over the counter drugs as a qualified expense of the Health Spending Account.

On the positive side, I know several gun dealers that tell me gun and ammunition sales have been way up. They attribute this to the public perception of the Administration's view on gun laws.

My income is down. A few months after Obama assumed office, one of the contracts that my part-time employer had was canceled; the business was cutting costs in anticipation of increased taxes and reduced profits.

The effect of economic policy has made a significant negative impact on my primary job. The stock market drop resulted in a 40% loss of equity in my employer's endowment fund. That, coupled with reduced income, resulted in a $5 million loss of income for 2010. The loss of income resulted in layoffs of 25% of our workforce.

It is your turn: How have you (or someone you have direct knowledge of) been affected? What is the net effect of the change of administration and congress on you?

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